Shares in growth penny stock MADE.com (LSE: MADE) have slumped 60% since its IPO in June last year. The company’s market value has been cut in half as investors have dumped highly valued growth equities as the economic outlook has become more uncertain.
However, I think this could be an opportunity for long-term growth investors like myself to snap up a few shares in this expanding UK business.
Penny stock growth opportunity
Even though shares in MADE have been under pressure over the past couple of months, the company’s underlying fundamental performance is nothing to be sniffed at.
According to a trading update published at the beginning of the year, sales increased 38% during 2021 to £434m. Compared to pre-pandemic levels, sales were up 79%. What’s more, the overall active number of customers increased 26% to 1.3m.
As well as its existing business, the company is also pursuing a major growth initiative in its marketplace offer. The group is building an online platform for designers, artisans and smaller brands. These users can leverage the site and infrastructure to reach a wider number of consumers and process orders.
This is similar to the model Amazon pioneered with its Amazon Marketplace division, which has become a significant profit generator for the group.
These are the two primary reasons I think MADE is an attractive growth penny stock to buy today. The company’s flagship business seems to be firing on all cylinders, and its marketplace initiative could provide significant additional growth in the years ahead.
That said, the company also has to overcome some significant headwinds. These include the supply chain crisis, which is having an impact on overall group order lead times, and higher prices. And while the marketplace initiative could become a significant profit centre for the business, this is a competitive space. MADE will have to fight other online giants for a piece of the global retail industry.
Good resources
Still, despite these headwinds, the group has the resources available to fight for market share. At the beginning of January, the company had cash resources of over £100m.
Based on current analyst projections, this will be enough to support the business until it is profitable. Analysts believe the firm will lose money in its 2021 and 2022 financial years. However, they are projecting a small profit for 2023.
Of course, there is no guarantee the company will hit these growth targets. Nevertheless, I think they illustrate its potential over the next few years. As such, I would be happy to acquire the fallen star for my portfolio as a speculative growth penny stock.
As MADE cements and develops its place in the online furniture market, I think it can gain market share. Ultimately, this should help boost the company’s profit margins and provide more capital to reinvest in growth initiatives, supporting additional sales and earnings growth.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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